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Fashion faux pas

3 Apr 2020 By Sharon Lam

The acquisitive Chinese owner of Lycra is getting stretched. Shandong Ruyi had designs on becoming a global fashion empire akin to a less luxurious LVMH. As part of that plan, it agreed to pay $600 million to buy control of Swiss brand Bally from the Reimann family’s JAB. That was over two years ago, and the company has yet to lock up the financing. It’s a sign that things are unraveling.

Shandong Ruyi Chairman Qiu Yafu was vocal about his ambitions. Though not exactly haute couture, his company built an international portfolio, borrowing heavily to snap up the likes of SMCP, the French group behind the Sandro and Claudie Pierlot brands. It also bought a stake in menswear maker Bagir and, according to Bloomberg, spent over $2 billion for a Koch Industries subsidiary that included Lycra in a deal completed last year.

Like fellow Chinese globetrotters HNA and Anbang, Shandong Ruyi’s adventure may be coming to an end. Its corporate structure is labyrinthine and opaque, making it hard to keep track of the various parts. Last October, state-owned Jining City Urban Construction Investment injected some $500 million into one subsidiary, Shandong Ruyi Technology Group, helping it narrowly meet a December deadline to repay distressed offshore bonds.

The Bally deal also may not be the only one in trouble. Bagir and Portugal’s Calvelex, a supplier to Aquascutum, are balking over outstanding payments, Reuters reported. Shandong Ruyi Technology’s adjusted debt grew to some $4.8 billion as of June, over 7 times EBITDA, Moody’s analysts said in December. Because the ratings agency does not see enough cash and estimated cash flow to cover the amount coming due soon, it slashed the company to Caa1, signifying a very high credit risk.

While Shandong Ruyi Technology may be able to reach into other government or related company pockets for help, asset sales also can’t be ruled out. Securing good prices won’t necessarily be easy, though. Much of the industry is grappling with pandemic-related struggles. SMCP warned last week that the coronavirus would hit its first quarter sales; it has lost about 60% of its market value this year. Buyout firms might pick through Shandong Ruyi’s remainders, but the company looks headed for China’s discount conglomerate bin.


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